1) What is the approximate standard deviation of returns if over the past four y

Question

1) What is the approximate standard deviation of returns if over the past four years an investment returned 8.0%, -12.0%, -12% and 15.0%?

2) Plasti-tech Inc. is financed 60% with equity and 40% with debt. Currently, its WACC is 10% and free cash flows are estimated to be $100,000 next year and $200,000 the following year with 5% growth forever. If there are 10,000 common stock shares outstanding, what is Plasti-tech's stock price per share?

3) What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20 dividend when the tax rate is 35%?

4) What is the cost of preferred stock that pays a 12% dividend and sells at par if the firm's tax rate is 35%? Hint: assume preferred stock price is $1,000 and dividend is $120.

Explanation / Answer

1) What is the approximate standard deviation of returns if over the past four years an investment returned 8.0%, -12.0%, -12% and 15.0%?

Mean = ( 8 - 12 - 12 +15)/4 = -0.25 %

SD = sqrt ([ (8 +0.25)^2 +(-12- 0.25)^2 +(-12 - 0.25)^2 +(15 +0.25)^2] /4 )= 12.25 %

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